[h] CPCU 410 – Module 9
[q] Financial market
[a] A market used for trading securities.
[q] Types of securities traded in financial markets
[a] Securities include:
[q] Money market
[a] A market in which short-term securities are traded. Securities mature in one year or less.
[q] Capital market
[a] A market in which long-term securities are traded.
[q] Primary market
[a] A market that deals with the issuance and sale of securities to investors directly by the issuer.
[q] Types of primary markets
[q] Direct search market
[a] A type of primary market in which participants find their own trading partners.
[q] Broker market
[a] A type of primary market in which participants find trading partners through the use of agents.
[q] Dealer market
[a] A type of primary market in which participants trade with dealers who hold themselves out as buyers and sellers.
[q] Auction market
[a] A type of primary market in which participants compete against other investors through an intermediary.
[q] Secondary market
[a] A market for investors to buy and sell securities that have been previously issued.
[q] Market depth
[a] A market’s ability to sustain relatively large market orders without much impacting the price of the security.
[q] Market breadth
[a] A ratio that compares the total number of rising stocks to the total number of falling stocks.
[q] Financial intermediary
[a] An entity that acts as the middleman between two parties in a financial transaction.
[q] Benefits of financial intermediaries
Matching of parties with disparate needs.
Purchase and sale of a variety of securities.
Providing a wide range of denominations.
Claims produced by intermediaries are often more liquid than stocks issued by companies.
[q] Commercial bank
[a] A type of financial intermediary that accepts deposits from savers and makes varying types of loans.
[q] Investment bank
[a] A type of financial intermediary that facilitates the purchase of securities by investors.
[q] Investment company
[a] A type of financial intermediary that manages mutual funds and other investments.
[q] Risks faced by financial institutions
Interest rate risk.
[q] Credit risk
[a] The risk that debtors fail to repay their outstanding debt. Also known as counterparty risk.
[q] Liquidity risk
[a] The risk that an asset cannot be sold quickly without incurring a loss. Also, represents the risk that an organization will have insufficient cash to satisfy its current obligations.
[q] Market risk
[a] The possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets.
[q] Interest rate risk
[a] The risk that the value of an investment will decline due to interest rate changes.
[q] Pricing risk
[a] The potential for a change in revenue or expenses resulting from an increase or decrease in the price of a product or an input.
[q] Systemic risk
[a] The potential for a major disruption in an entire market. These risks are generally nondiversifiable.
[a] Any innovation that combines finance and technology.
[a] The insurance industry’s use of emerging technology.
[q] Big data
[a] Data that is too large to be gathered by traditional methods.
[q] Data capture
[a] The use of smart products to gather data.
[a] A virtual ledger that is dynamically updated. Facilitates secure transactions without the need for a third party.
[q] Cloud computing
[a] A method of storing data from remote locations, using the internet or another network.
[q] Artificial intelligence
[a] The ability of machines to simulate human intelligence. Enables computers to complete tasks that require critical thinking.
[q] Internet of Things
[a] A network of objects that transmit data without intervention by humans.
[a] Use of devices in vehicles with wireless communication and GPS tracking that transmit data. Can report information about a driver’s speed and distance, as well as braking patterns.